As the world continues to be gripped by fears of rising inflation and de-globalisation in the wake of the crisis in Ukraine, Asian markets were showing the strain on Monday. The Hang Seng Index dropped by nearly 5%, while shares of Chinese e-commerce giant Alibaba fell in pre-market trading.
Hong Kong Headed South
Although sentiment on the part of traders the world over with regard to China has been broadly bullish in recent months, several interlacing factors may be causing those holding such opinions to think twice.
In contrast to other central banks like the Federal Reserve and the Bank of England, the People’s Bank of China has kept the purse strings tied tight throughout the COVID-19 era, pursuing rather hawkish policy portfolios throughout the course of the pandemic. However, earlier this year, the Chinese central bank cut borrowing costs across the economy, leading some observers to conclude that economic growth could be stimulated as a result.
Despite these positive signs, a revelation by U.S. security officials has many concerned for the near-term trajectory of the Chinese economy. On Monday, an American government official, remaining anonymous, announced that the Russian government had requested military aid from the People’s Republic of China (PRC) shortly following the former nation’s invasion of Ukraine.
While Chinese officials have been strident in their denial of such allegations, given the strict sanctions regime currently having drastic detrimental effects on the Russian economy, some worry that the aforementioned economic measures could be expanded to cover China should the PRC be drawn into the conflict on Russia’s side.
A third factor, perhaps surprising to those who had already put the coronavirus out of mind following Omicron’s ebb in many Western nations, is the lockdown put in place in a southern Chinese metropolis. Shenzhen, a city of nearly 18 million people, will be closed to entry and exit for at least the next week according to government bodies. Beyond the clear inconvenience to Shenzhen residents, the global supply chain could be set for kinks, considering the city’s supreme manufacturing importance for companies like Apple (AAPL) supplier Foxconn and high-tech firm BYD (1211.HK). With COVID-19 infections on the rise, it is unclear when things will return to normal in this industry hub.
Over the course of trading Monday, the Hang Seng Index (Hong Kong 50) dropped by just under 5%. Some financial analysts even characterised the atmosphere on the trading floor as ‘panic selling’. Clearly, those investors who pushed the Hong Kong-based index down may have deep concerns with regard to macroeconomic trends in the world’s most populous country.
Offshore-Listed Firms Get the Jitters
One U.S.-listed Chinese giant could be set for an especially drastic tumble on Monday once Wall Street trading begins. Alibaba’s (BABA) stock value dropped by nearly 6.7% on Friday. In premarket trading Monday morning, this e-commerce giant, as well as the shares of other American-listed Chinese firms that utilise American depositary receipts in order to be traded in New York, like Nio (NIO), were down sharply in pre-market trading.
Some have posited that this could be due to the continuing regulatory crackdown led by the U.S. Securities and Exchange Commission. According to commission officials, foreign companies that decline to comply with American government inspection of their finances can be forcibly delisted from U.S. exchanges like the S&P 500 (USA 500) or Nasdaq (US-TECH 100).
It may seem clear to many that the Chinese economy is currently facing significant headwinds due to geopolitical tensions as well as the resurgent coronavirus. With these factors’ effects reaching far beyond Chinese shores, it remains to be seen whether those who had previously predicted a bullish year for the economy of the PRC will be vindicated or not.